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Sunday, 7 April 2013

NBN: What Turnbull won't say

Mr Turnbull is expected to announce his "no surprises" version of the NBN at the coming CommsDay conference. My view on the Coalition's plan:

Abbot/Turnbull/Fletcher have it backwards: the NBN is about their heartland, not Consumers. Those already benefiting from the NBN Co rollout are: people in Country, Businesses and shareholders: firstly Optus and Telstra, then many others, like FOXTEL, Online Retailers and every small business owner in the country.

Yet the Coalition "cheaper, better, quicker build, more affordable" is pandering to electors as consumers at the expense of all traditional Coalition support base and positioning the NBN is an expense, not the greatest benefit we've ever seen to Telcos, Content Providers and Retailers and E-tailers.

Turnbull has his costs wrong. The publicly available figures for National full-coverate rollouts put fibre as the cheaper solution, when fully costed.

The best guesses every released for an FTTN range from $1,250-$1,700/premise, plus the customer has to supply their own premises termination plus it relies on extensive existing common infrastructure that will need upgrading as demand grows within the new FTTN.

Building an FTTN isn't a cost saving in deploying a full-fibre network. Just laying the last-mile fibre will be over 50% of NBN's projected cost.

Then the network is NOT the one you'd build for fibre, it isn't the best topology, nor the least expensive to lay, nor the most robust, resilient nor expandable.

Plus you're stuck with 20,000 old, high maintenance nodes of limited capacity in the field. It's not just a very bad design for a fibre network, but the worst you can come up with.

Telco networks have very high Gross Margins (75-90%) because of their high capital costs. Interest and Depreciation are their major costs, not operations.

A copper lead-in FTTN has a 15-20 year life, not the 40+ of Fibre.

Depreciation of the asset is faster, increasing expenses significantly.

Fibre is 5-10 times cheaper to maintain than copper. [no sources]

Active equipment in the field is 2-5 times more expensive to operate and maintain than the passive GPON fibre. [no sources]

The cost-of-capital and Internal Rate of Return for NBN Co are as low as it gets.

Private firms will have higher capital costs and require at least double the IRR (Telstra aims for better than 14%). Together, this says private firms will have financial structures at least twice as costly

Remember the deal done by Barnaby Joyce for Country voters before voting for the T3 sale?

It would have to be one of the greatest wastes and under-performing promises ever made in Australian Political History.

The best Telecommunications deal that Joyce's electorate has ever had is the Labor NBN, yet the Nationals seem entirely silent on the matter.

Telstra was an impaired asset when sold in 2006, and the Howard government knew it.

Sophisticated investors knew this as well. It's why Telstra shares went down after the T2 float..

Sol Trujillo in 2005, just 5 weeks after coming on-board, made a point of telling the Prime Minister and his senior ministers exactly this and what to do about it, but was rejected out of hand. We can only guess why.

The Telstra T3 sale was in the Budget at $5.20/share, but they they only raised $3.60/share.

Then the shares fell to $2.60 and languished there until the NBN contracts were signed.

The T2 investors took a bath because the Coalition failed to address the commercial and regulatory problems of Telstra when they had the chance.

The Coalition very cynically and opportunistically took advantage of small, unsophisticated investors in the T3 float. It was never a good deal and they knew it.

By separating Telstra into two business, when they had the chance, and adopting the Trujillo FTTN plan, the Coalition would've had two valuable assets to sell in 2007, even if the FTTN roll-out was incomplete.

Whilst Turnbull has loudly trumpeted the need for "Cost Benefit Analyses" (CBA's), he's never laid out how he'd do that. How you define the question, defines the answer, and as an experienced large-scale investor, he knows this very well.

Will he compare Apples-and-Apples costs and services?

The same guaranteed busy-hour service speeds. [no congestion, low-latency]

Nobody has ever suggested that a hybrid Fibre/Copper FTTN is other than an interim solution. Running a CBA that stops before this point

What elements will be included and excluded in the valuations?

Will his CBA be strictly limited to the Federal Government direct cash flows?

This produces a very warped and

Will increased shareholder value to Wholesale and Retail Service Providers and Telephony companies be included or excluded?

Will increased value and turnover of Digital Content and Streaming Service providers be included or excluded?

Will the increased business and opportunities to other on-line businesses be recognised?

Will the inherent NBN Co plan cross-subsidies for Rural, Regional and Remote subscribers be fully recognised?

25% of the NBN Co build costs are for 7% of subscribers. (Fixed Wireless and Satellite networks), yet there is a single wholesale cost structure, providing a simple, robust and non-interventionist mechanism to enable a necessary cross-subsidy.

Some significant proportion of the NBN Co Fibre roll-out is to sparsely populations, at a higher per-premise cost. Again, a cross-subsidy necessary for these high-cost, low-return segments to ever be built.

Do the public get a say in what subsidies, in capital and operations, they are prepared to wear? If expressed as a per-subscriber percentage amount, it will be very modest, say 5%, because Australia has one of the most (90+%) urban populations in the world.

The Labor party didn't consult the electorate on this question.

The Coalition is continuing this high-handed, arrogant approach: We know what's good for you and don't care what you think!

The Abbot/Turnbull/Fletcher plan has never been about anyone but the Liberal Party and their short-term interests. It is yet another cynical manipulation of the electorate with unfounded, emotive terms like "massive waste" and simple pork-barreling at the expense of everyone else.

It deliberately ignores the National Party constituents who have the most to gain from this - both in the Fibre roll-out, which cannot happen under a "cheaper, quicker and more affordable" regime, and

leaving in limbo the loss-making investment of $9+ billion in NBN Co's Fixed-Wireless and Satellite networks, intended to be fully deployed in 2015 and on-target as far as we know.

The Coalition has pursued a line of "Worst Government Ever" for the last 3 years. If they gain power, why would they not deliberately set out to prove that at every turn, starting with the most high-value, high-profile Labor projects?

The Coalition are cynical, petty and malicious enough to attempt to gain a political advantage by somehow destroying the value of this high-cost network, leaving those in the Country back in the Dark Ages.

Come Tuesday, Mr Turnbull will have nailed his colours to the mast, then the real debate can start.